What Meta, the parent company of Facebook, is trying to do to dominate the future virtual world called the metaverse in the West, Chinese tech giant ByteDance has been matching with the aim of leading in the East.
Beijing-headquartered ByteDance, which scored $58 billion in revenues in 2021, is assembling a metaverse hardware, content, software and platform lineup similar to that of Meta.
While ByteDance remains low-key in its maneuvers amid a tech clampdown in China, it is the most ambitious Chinese tech company in terms of betting on the metaverse.
But it is a risky path, as evidenced by Meta’s $10 billion losses in 2021 from metaverse-related investments and subsequent downward spiral of its share price.
While there is almost universal consensus that the next chapter of the internet will be three-dimensional and experience-based, no one can be sure if and how soon people will buy and wear virtual reality (VR) headsets en masse.
Even at the 10 million unit VR headset cumulatively sold by Meta, it would require a high growth rate and a timeline measured in decades to reach anything at scale in the context of the internet.
For early risk-takers like Meta (market capitalization of $517 billion) and ByteDance (estimated valuation of $357 billion), they could find themselves sitting on top of the biggest goldmines if the bet turns out as expected.
But the alternative outcome could be a massive drag on the companies’ performances, even threatening their entire future. After all, the fad of VR and virtual world has fizzled many times before, from Google Glass, Sony AR glasses to Second Life.
Hardware: Meta Quest vs. Hardware. ByteDance Pico
Facebook famously acquired virtual reality headset maker Oculus (now renamed Quest) in 2014 for a whopping $2 billion. To put it in perspective, the entire VR and AR sector saw over $2 billion in total funding and mergers and acquisition in the entire year of 2020, according to ABI Research.
In a similar fashion, ByteDance bought Chinese VR headset maker Pico in August 2021 for a rumored jaw-dropping price of around 9 billion yuan ($1.4 billion). That amounts to nearly half of the total funding and M&A deals recorded in the Chinese XR (extended reality) industry in 2021, according to a Chinese research company called Tuolu0.
Another measure of how lofty this price is to compare it with a close rival. In 2021, 11.2 million AR/VR headsets were shipped, with Meta’s Quest 2 taking a 78% market share, IDC data shows. Two Chinese companies, DPVR and Pico, were ranked second and third, with 5.1% and 4.5% global market shares, respectively, according to IDC.
DPVR, a close rival to Pico with a slightly higher market share, just completed a $10 million venture financing in November 2021, defining investors are valuing DPVR at around hundreds of millions of dollars, a far cry from what ByteDance paid for Pico.
ByteDance is the only Chinese tech firm having done an outright acquisition of an XR hardware company, and the company did not respond to requests for comments on its plans for XR and the metaverse.
Tencent is reportedly in talks with a number of VR headset makers, but nothing is confirmed yet. Tencent bought a niche game phone maker called Black Shark Corporation in January, potentially utilizing it for developing an in-house VR headset. With several failed attempts to enter the hardware sector, Tencent’s strategy in XR hardware is still shrouded in secrecy.
Alibaba has invested in American AR startup Magic Leap, and has recently invested in a Chinese AR glasses maker, according to people with knowledge of the matter. Baidu doesn’t have in-house XR hardware operations. Huawei hasn’t updated its VR products for a while.
Besides being the only Chinese tech company with an in-house XR hardware unit, it’s what ByteDance did after the acquisition that laid bare its ambitions for the next technological frontier.
With over 600 million Douyin (TikTok’s Chinese version) users, ByteDance has conducted massive and expensive campaigns to catapult sales of Pico, with a goal to catch up and eventually surpass Meta’s Quest in shipment.
Via engaging Douyin influencers and entertainment celebrities, Pico scored 1.13 billion impressions to closely targeted users “handpicked” by ByteDance’s highly accurate algorithms during the Chinese Spring Festival alone.
The company also offered massive discounts and giveaways to drive up sales. In one lucky draw earlier in 2022, Pico gave away 3,000 Pico Neo 3 headsets, which retails at 2,500 yuan ($389).
Interestingly, Pico and Meta’s Quest are “close siblings.” Founded in 2015, Pico was incubated inside the Chinese company Geortek Inc., the manufacturer of Meta’s Quest headset. Pico’s founder, Zhou Hongwei, was previously the vice president of Geortek, a Chinese Original Equipment Manufacturer (OEM) serving companies like Apple, Huawei, and Xiaomi. Geortek now manufactures both Pico and Quest headsets.
The contest between ByteDance’s Pico and Meta’s Quest will play out on the global stage. In April, Pico entered the European consumer market in a beta program, and will expand to Japan and South Korea next.
The duo will also compete in brick-and-mortar stores. Meta is opening an offline retail store in May in California, while Pico is rumored to be opening stores (including authorized offline dealers) in the thousands this year. Expect the two arch-rivals to battle it out in every corner of the world.
So, can ByteDance’s spending spree support sustainable growth of Pico sales? It will depend on user experience. After all, a VR headset is just a tool to access virtual reality content. Without engaging applications and games to keep users strapped in, the best VR headset amounts only to a piece of useless plastic.
Content and Platforms
The reason why ByteDance and Meta are selling as many VR headsets at a price below cost is that dominant market shares in hardware will also make them critical VR content distribution centers. It’s similar to how Apple iPhone’s 60% global market share made its App Store the leading app shopping center.
If ByteDance and Meta can build the biggest and grandest shopping center, it will attract the best and the most number of developers and creators to “open shop” in their mall.
The shopping center Meta and ByteDance have set up are Meta Quest Store and Pico Store. Like Apple’s app store, users can access VR content, apps, and games here. Meta Quest Store has over 1,000 apps, with a popular VR game called Beat Saber having grossed $100 million in lifetime revenue on the Quest Store alone.
Pico is playing catch up here, too. There are over 425 apps inside the Pico Store, with gaming apps accounting for one-fifth of the apps. Because Pico headset sales lag significantly to Quest headsets, Pico Store’s traffic and users are likely massively behind the Quest Store.
ByteDance is aggressively narrowing this gap. Pico Store introduced nine new games since last December. To attract more users, Pico held a VR eSport festival last November, offering large incentives to new users.
Aside from aggregating third-party apps, Users walking into this shopping center should expect to encounter shops owned by the mall owners. Think about how Apple iPhones comes with a set of pre-installed, undeletable apps for almost all your needs: FaceTime, iCould Drive, iTunes, and so on.
Meta and ByteDance have their own pre-installed apps on their VR content store. For Meta, it’s the Horizon suite of apps: Horizon Home is an entrance space or a welcome lobby, the first thing users will see when donning their Quest VR headsets. Horizon Worlds is a Second Life-like platform where creators can build user-generated content. Horizon Venues lets users watch concerts, sports, and other events within virtual worlds. Horizon Workrooms is for remote work.
ByteDance will certainly have similar offerings. In January 2022, ByteDance launched an internal testing version of a virtual world social networking app in China called Party Island. Just like Meta’s Horizon Worlds, it allows users to generate their own avatars and socialize in virtual worlds. A few months earlier, ByteDance launched a similar app called Pixsoul in Southeast Asia.
Whether these apps are ByteDance’s answer to Meta’s Horizon apps doesn’t matter. The important thing is that any shopping mall owners, or ecosystem builders in tech parlance, will insert and prominently position their own apps to maximize control and profit.
Moreover, mall owners will need to make it easy for people to open a store. Both ByteDance and Meta are working on this. Meta launched tools for building metaverse content, including tools helping developers build mixed reality content, real-world 3D reconstruction, AR effects tools, and avatar generators.
ByteDance has invested in a couple of digital human and virtual idol startups over the past two years. It also invested in a cloud digital twin company called Zhongqu Tech at the end of 2021. The company focuses on AI machine vision and 3D technology to provide users with immersive space roaming experiences.
So far, the Meta and ByteDance shopping centers are the two biggest, most completed, and comprehensive malls on the block. The question is, will people come?
Meta has taken a clear lead in the foray into the metaverse, and ByteDance appears to be the only tech giant determined to disrupt Meta’s plans by copying Meta’s playbook.
There are disagreement and distain among tech luminaries about this metaverse thing. Google CEO Sundar Pichai prefers to not use the term. Tencent’s founder Pony Ma has his own word for it: Quanzhen (all-encompassing and real) internet.
Each tech giant has its respective vision for how things will evolve, making the fact that ByteDance’s Chinese management and Meta’s founder Mark Zuckerberg see the metaverse eye to eye quite a surprising concord.
If the metaverse blueprint of the ByteDance/Meta duo play out as planned, it means the future virtual world will display similar characteristics of the mobile internet: segmented, centralized, and messy.
Users will likely be buried under a pile of wires and plastic boxes, frustrated by multitudes of accounts, avatars, and siloed experiences.
There are, however, so many ways things could go wrong. Aside from uncertainties of user adoption tech readiness, our immediate and chaotic physical world could reverberate to the virtual realm.
Countries could ban sales of certain companies’ products. China could limit consumer VR usage if the government deems it unhealthy or unproductive like it did with video games. New regulations could break up companies or force changes, and the list is long.
As users, there are perhaps things we could do aside from accepting whatever these tech billionaires decide that are good for us.
For example, Mark Zuckerberg spent $1.6 million on air travel last year, while he was also telling us that travel in the metaverse could make real travel unnecessary.
Well, that’s one thing we can demand, that our tech overlords do not to others what they do not wish done to themselves.